Once again, the South African government is vacillating between two competing interests: maintaining popular support and fostering economic growth. Late Dec. 9, South African President Jacob Zuma replaced Finance Minister Nhlanhla Nene, who was appointed to the job in May 2014, with David van Rooyen, a ruling party member of parliament from Merafong, a municipality west of Johannesburg. The appointment caused the value of the rand, already at record lows this year, to plummet even further, dropping from roughly 14.8 rand to the U.S. dollar to 16 rand by Dec. 11.
Digging In for a Fight
The reshuffle comes as South Africa faces a stagnant economy and significant political and labor challenges that will persist for at least another year. South Africa, highly dependent on foreign capital inflows for current account balancing as well as industrial development requirements, is vulnerable to the international consequences of quantitative easing in the United States. The South African currency, the rand, is linked to the international economy because of mineral commodity exports and supply chain connections to other southern African economies, and it has experienced significant depreciation over the past couple of years. Minerals produced in South Africa — most notably gold, platinum, coal and iron ore — have declined both in terms of price and production level because of internal and external factors.
Though South Africa cannot control global demand and pricing for minerals or U.S. fiscal policy, it can control its own fiscal policy and shape domestic policies that effectively constrain the production of the country's commodities. And that is exactly what Nene attempted to do, mostly with the support of international economists and credit ratings agencies. However, his focus on economic growth, balanced budgets and spending controls sometimes clashed with the priorities of the party's constituency, including job creation and the funding of social programs. That likely put him at odds with the ruling African National Congress (ANC), which wants to keep its grip on power.
The ANC has faced rising challenges not only from opposition parties but also from within the ruling alliance over the past several years. In response, it has expanded social spending, propping up underperforming state enterprises and national welfare schemes, and it has sympathized with the country's labor unions as they push for annual wage and benefits packages that often massively exceed inflationary rises in the cost of living.
In trying to maintain the support of voters by ramping up public spending and overlooking government inefficiencies, the ANC has alienated many of its former supporters. In 2012, Julius Malema of the ANC's Youth League left the party and formed the Marxist-nationalist Economic Freedom Fighters (EFF) party in 2013, carving from the ANC an important voting constituency. The EFF is now the country's third-largest political party in terms of parliamentary seats and is popular among the country's peri-urban, unemployed and underemployed black labor pool – an important voting bloc in a country where unemployment levels are thought to hover around 40 percent by broad definition.
From the political center, the ANC is challenged by the Democratic Alliance, essentially a coalition of white liberal voters and middle-class, urban black South Africans. The party, which focuses its campaign on government efficiency and relative neoliberalism, controls Cape Town and several smaller municipal sections across the country. The Democratic Alliance is a very real threat to the ANC's control of the large metropolitan areas of Pretoria and Port Elizabeth in the lead-up to 2016 elections.
The ANC wants to avoid further electoral losses, which is probably why Nene was replaced. The move is likely meant to soften the strict fiscal prudence measures the former finance minister tried to implement. This is not to say that van Rooyen will take a remarkably different stance when it comes to fiscal controls, only that he is likely to be more conciliatory toward top ANC leaders. For instance, wage contracts in the platinum and gold sectors are up for renewal in 2016; van Rooyen will likely have to support political efforts to preserve mining sector jobs from retrenchment and at the same time give in to large salary demands — a combination that has been impossible in recent years because of South Africa's depressed economy.
Interestingly, and possibly intentionally, van Rooyen may come into conflict with Cyril Ramaphosa, South Africa's deputy president, who has played an important role in trying to foster constructive relationships among mining sector stakeholders since his appointment in 2014. Ramaphosa is considered a potential successor to Zuma in the ANC's 2017 elections. So, along with trying to maintain voter support, van Rooyen's appointment could be an attempt by the president to neutralize the threat that Ramaphosa poses. Regardless of the exact motives, it is clear that the reshuffle of South Africa's Finance Ministry is quite political. It is also clear that South Africa is trying to maintain a precarious balance between policy goals that are fundamentally incompatible.
Soon after this analysis was published, newly appointed Finance Minister David van Rooyen was replaced in a surprise move by the more experienced Pravin Gordhan. The decision came amid widespread concern over South Africa's struggling economy and doubts about van Rooyen's ability to handle the post. Gordhan previously served as South Africa's finance minister from 2009 to 2014. The underlying competing policy goals pulling at the South African government remain.